Another way to get the oil out – trains

Tristan was right to say that pipelines are a strategic vulnerability, when it comes to oil sands extraction. It is one point where opponents of the oil sands can apply pressure. At the same time, the industry is investigating other options:

Canada’s two major railroad companies have begun making regular shipments of oil, in a move that changes how Canadian crude moves to market – and opens the door to new destinations for energy exports, including Asia. Although pipelines continue to carry the overwhelming majority of Canada’s oil production, both Canadian National Railway Co. and Canadian Pacific Railway Ltd. have begun using their rail networks to deliver crude, moving past technological tests into actual commercial service.

The idea of a “pipeline on rails” has been quietly pursued by both CN and CP in recent years. Both believe their tracks can divert oil to the best possible markets at any given time, freeing energy producers from the constraints of pipelines, which are built to last for decades and as a result cannot quickly be changed to accommodate market shifts

Even if trains does provide an alternative, it is still worth trying to block pipelines, which would probably move every unit of climate-altering oil more cheaply.

We should expect capital to find alternative means of transportation when some are blocked. That said, railroads are much easier to shut down by use of civil disobedience than pipelines (once the pipeline has been built).

Efficient and inexpensive transportation of energy is crucial for Canada’s energy sector. Pipelines provide the most reliable and efficient means of transporting large amounts of crude oil. There are about 23,000 kilometres of main trunk lines transporting crude oil from the Western Canada Sedimentary Basin to Canadian refineries and international border crossing points, and from the United States into Canadian refineries. There are also over 12,000 kilometres of gathering lines, transporting crude oil from producers’ fields to the main trunk lines, and over 5,000 kilometres of pipeline dedicated to the transport of refined petroleum products.

The physical difficulty of shutting down a transmission corridor might not be the most important factor. It seems likely that the level of local support is the most important factor. If the locals are strongly in favour (for economic reasons, or others), it seems unlikely that outside efforts to block fossil fuel shipments will meet with success.

Oil companies pressed to ship oil out of the Bakken formation in Saskatchewan and North Dakota are flocking to sign transportation deals with rail companies as the threat of a pipeline shortage looms.

Cenovus Energy Inc., for example, just struck a deal with Canadian Pacific Railway Ltd. that gives the oil sands company access to 48 railcars with room for about 600 barrels each, executives said at the company’s investor day on Wednesday. Cenovus will fill the 48 cars in Estevan, Sask., once every 20 to 35 days, depending on where the oil is headed.

Pipeline bottlenecks and discounted heavy oil have producers purchasing a train ticket to move their product to market

In a market where heavy crude sells at a huge discount and pipeline space is at a premium, one oilsands producer has found a way around the bottleneck.

Southern Pacific Resource Corp., which began trucking out initial production from its new McKay Thermal Project three weeks ago, will open a dedicated rail terminal in a few weeks just south of Fort McMurray and ship its product in leased tanker cars via CN Rail all the way to Natchez, Miss.

From there, it’s just a short barge ride down the Mississippi River to one of the eight refineries in Louisiana, where the crude will fetch $20 to $30 a barrel more than it could at the congested terminal hub in Cushing, Okla.

With opposition to the proposed Gateway Pipeline … with the volume of oil from new wells in the U.S. northwest plugging the pipes already running south, the old way – the railway is looking new again, with a proposal for a rail line between the Alberta oilsands and Alaska. Trains can move hundreds-of-thousands of barrels of crude but will they extinguish the environmental opposition or inflame it?

Earlier this week, five CP Rail tank cars jumped the tracks just outside of Jansen, Saskatchewan, spilling more than 91,000 litres of crude oil. Last month, a similar derailment near White River, Ontario, resulted in a 63,000-litre oil spill.

While these trains were not carrying bitumen from the oilsands, it’s becoming increasingly common to move oilsands by rail, particularly as public opposition to various new pipeline proposals continues to grow and oilsands producers seek other shipping options.

Add to that a capacity crunch caused by booming oilsands production, double-digit growth rates from Alberta’s conventional oil sector, and surging U.S. shale oil production — suddenly, shipping bitumen by rail is looking increasingly attractive for an industry that is getting progressively more worried about moving its product to market.

But it raises other worries, with some observers suggesting the successful opposition of pipeline proposals may inadvertently be creating more environmental risks as a desperate industry looks to other means of shipping bitumen, including moving bitumen by rail.